As expected, it features former prime minister Massimo D'Alema as foreign minister and former European Central Bank board member Tommaso Padoa-Schioppa as economy minister.
Mr D'Alema, 57, ex-communist chairman of the Democrats of the Left, Mr Prodi's biggest coalition ally, will also hold one of two deputy prime ministerial positions along with Francesco Rutelli, who doubles as culture minister.
Mr Prodi was formally sworn in as prime minister by President Giorgio Napolitano ahead of his 25-member cabinet, opening a new chapter in Italian politics after his victory in last month's general elections, still being contested by the ousted centre-right leader Silvio Berlusconi.
Mr Berlusconi then formally handed over the reins of power to Prodi during a meeting in the prime minister's offices in Palazzo Chigi, central Rome.
The bitter rivals re-emerged shortly afterwards, shaking hands and joking as they posed for photographers. Mr Prodi then headed into the first cabinet meeting of his new government.
The appointment of 65-year-old technocrat Mr Padoa-Schioppa as economy minister is likely to be seen by the markets and international financial bodies as a promise of measures to reduce public debt, which mushroomed under Mr Berlusconi's conservatives.
Mr Prodi, a former European Commission president, was able to complete his list only after haggling within his nine-party coalition over key posts which went on until the early hours of Wednesday.
Thin majority
The bickering underlines the problems Mr Prodi is likely to face in government as he defends a razor-thin parliamentary majority after the closest Italian election in living memory.
"There is a great desire for a new start combined with a desire for cohesion and unity," Mr Prodi said after announcing his cabinet.
"The first commitment will be to rebuild a spirit of solidarity and a consensus on the goals needed for the country to move forward, and that means lowering the level of tension and litigiousness," he added.
His ministerial list featured a surprise choice of Clemente Mastella, leader of the small Catholic UDEUR party, as justice minister. Mastella, whose party holds three Senate seats, had threatened to pull out of the government if he was not handed a key ministry.
The government is dominated by the two biggest centre-left parties, the Democrats of the Left and the centrist Margherita, while Mr Prodi is one of five independents.
It includes one communist, Paolo Ferrero of the Refoundation Communist party, who will have responsibility for welfare, and six women, four more than the outgoing centre-right government. Critics said this was still two ministers short of what he had promised during his campaign.
Alessandro Bianchi, who is nominally an independent closely associated with the smaller Italian Communist Party, will take charge of transport.
Former anti-corruption judge Antonio Di Pietro, who led the "Clean Hands" investigation into the links between big business and politics a decade ago, has been handed the infrastructure portfolio.
Giuliano Amato, former vice-chairman of the European Convention which wrote the European Union's stalled constitution, will be interior minister in the new government.